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The Centers for Medicare and Medicaid Services is open to tying payments to how well drugs perform and paying different prices based on a patient's disease or condition, Administrator Seema Verma said. | Getty

Medicaid looking at ways to help states lower drug cost, Verma says

CMS is exploring options for helping states deal with the rising cost of drugs in their Medicaid programs, Administrator Seema Verma said Tuesday.

The agency is open to tying payments to how well drugs perform and paying different prices based on a patient's disease or condition, Verma said at the POLITICO Pro Summit. The government is also open to paying for a medicine over time, Verma said.

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CMS also wants Congress to reverse a change put in place under Obamacare that caps the discounts drug companies must give to states. Manufacturers must provide higher rebates to states when they raise drug prices faster than inflation. But Obamacare capped this penalty at 100 percent of the average manufacturer price.

Getting rid of this cap “will create incentives for manufacturers to be more cautious on price increases,” Verma said.

Verma said that both she and HHS Secretary Alex Azar are open to mandatory and voluntary drug pricing demonstrations in CMS’ innovation center, which lets the government test new payment ideas.

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Despite supporting flexibility for states, Verma doubled down on her recent denial of Massachusetts’ request to test a new way of paying for drugs, by creating a Medicaid formulary. Verma for the first time said there is a legal basis for the federal government’s denial.

Medicaid told the state it could create a drug formulary limiting what medicines can be prescribed only if it gives up the mandatory discounts drugmakers have to give states that agree to cover all medicines.

“We told Massachusetts if you want to go forward with negotiating with drug companies directly, we actually said we are supportive of that and you can move forward with that," Verma said. "However, the way the law works, they are not able to also get the rebates that are automatically required in the Medicaid program by law.”

Verma did not elaborate on the legal rationale, which has also been advanced by the pharmaceutical industry.

Not all health law experts agree with her interpretation.

Medicaid law doesn’t support this “all-or-nothing deal” under which rebates evaporate if access to drugs is restricted, Nicholas Bagley of the University of Michigan and Rachel Sachs of Washington University in St. Louis wrote in Health Affairs before the Massachusetts decision. CMS has selectively waived parts of the Medicaid statute in the past, they noted.

Health policy experts have also questioned whether some of the ideas touted by Verma would address the cost of drugs. For example, spreading out the cost of a medicine over a longer period of time — not unlike a mortgage — could reduce pressure on pharmaceutical companies to lower their prices.

Verma said at the Pro Summit to expect multiple actions on drug pricing from Medicare and Medicaid shortly.

“You will see a lot of action," she said. "This is not a one-shot wonder. It’s not like we are going to have one particular policy that will solve all the problems. Over the coming weeks, you will see a lot of initiatives on our end to try and deal with this."